Some of the findings are very relevant to a DIY Income Investor.
However, most US millionaire households are not super-rich: 90% percent have a net worth between $1-10 million.
The most interesting finding is that most US millionaires are self-made - rather than being inheritors of wealth. The overall conclusion of the study was that:
During the author’s investigation, they discovered seven common denominators among the people who become wealthy:
- They live well below their means
- They allocate their time and money efficiently, in ways conducive to building wealth
- They believe that financial independence is more important than displaying high social status
- Their parents did not provide much financial support (most did not receive an inheritance)
- Their adult children are economically self-sufficient
- They are proficient in targeting market opportunities
- They chose the right occupation
Some of the particular characteristics of millionaire households that are particularly relevant to a DIY Income Investor are:
- on average they invest nearly 20% of household income (and most invest at least 15%)
- most (79%) have at least one account with a brokerage firm
- most make their own investment decisions
- total annual realised income is less that 7% of wealth (i.e. they live on less than 7% of wealth)
- nearly all are home-owners
Are you an accumulator of wealth?
Millionaire households got that way mainly by accumulating wealth. Even now, you may be wealthier than you think! Many UK homeowners (particularly in the South East) are already dollar millionaires. 'Net worth' will include all your assets, such as any property you own (less any outstanding mortgage) and financial assets, such as savings and investments. Your pension funds or earned rights may well be a significant component of your wealth - you should be able to determine the value of your pension fund. (For UK readers with 'defined contribution' pensions, take the fund value; for 'defined benefit' pensions, your employer should give you an equivalent pension fund value - typically something like 20 times your annual pension entitlement).
- estimate your 'net worth', excluding any inherited wealth
- estimate annual household pre-tax income (if you are retired, use your income in your last working year)
- multiply your annual household income by your age and then divide by 10
- your net worth should be greater than this: if it is more than twice this amount, give yourself a gold star - the book says you can call yourself a 'prodigious accumulator of wealth'
I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.